Company 1 is an all equity financed listed company. It provides customised business support for clients in the UK. Shares are held by both financial institutions and individual investors. Two rival companies operating in the same industry as Company 1 are identified: AAT plc - operates largely in overseas markets with all the risk which that involves. BKK plc - operates largely in the UK with income generated from long-term contracts from established customer base. It is noted that the risk-free rate is 3% each year and the expected market rate of return is 13% per year. Required (a) Calculate, using the Capital Asset Pricing Model, the required rate of return on equity of AAT plc and BKK plc if their betas are 0.5 and 1.5 respectively. (3 marks) (b) Suppose that Company l's required return on equity is set at 9% per year by its directors. What would be the expected beta for Company 1? (2 marks) (c) Explain why AAT plc would have a lower risk than BKK plc despite its exposure to the overseas markets. (7 marks) (d) Company 1 just announced a decline in profit, but the share price went up by more than 5%. Explain to the directors of Company 1 why the share price would react this way. Your answer should indicate which form of market efficiency is violated and/or adhered to